The Employee Ownership Update

Corey Rosen

May 1, 2008

The National Center for Employee Ownership is conducting a survey of equity practices in private companies. It will be the only survey that looks at this issue in a broad group of companies, rather than just high-tech companies or the clients of compensation consultants.

If your company provides stock options, phantom stock, stock appreciation rights, restricted stock, or similar plans to one or more employees, you can now take the survey and receive the results for half the normal price (the normal price will be $150 to NCEO members and $300 to non-members). Results will be available in the early summer.

To take the survey, use this link. You must provide your e-mail to receive the survey results, but the NCEO will absolutely not share any individual company information with anyone.

Make Messages Stick

A great book to help your internal communications process is Made to Stick by Chip and Dan Heath. The book posits six key principles of sticky messages. They should be:

Simple

Unexpected

Concrete

Credible

Emotional

Stories

For instance, to communicate the potential benefit of an ESOP, have a former employee (or one with another company) come tell her story about how the ESOP distribution helped her put a child through college. The message is a story, is emotional, is concrete, is credible (because the source is not management or a lawyer), is not something people would expect, and is simple.

The ESOP Repurchase Obligation and Stock Value

Should the ESOP repurchase obligation affect stock value? More and more trustees believe it should. Not to reflect this value means the ESOP is arguably overpaying for shares of departing employees because the company's projected earnings do not reflect the emerging obligation. That means most participants end up worse off in the long run. But some other advisors argue that an outside buyer would make the obligation go away, and it is the outside buyer who is the theoretical buyer in calculating fair market value. Valuation consultants are also split on the matter. At the NCEO, we strongly believe, and have for years, that the repurchase obligation should normally be reflected in value (although there are some exceptions), but, in any event, ESOP fiduciaries need to look at this issue carefully.